Background: many real estate companies manage private equity real estate funds ("Funds") that range in size (typically) from $10 million to over $1 billion. The Funds' real estate assets are usually owned through special purpose vehicles (e.g. wholly-owned LLCs), through subsidiary REITs, or other ownership structures. As a result, the Funds often directly own "securities" as a means to the ultimate asset -- real estate. Many of these fund sponsors relied on the 14 or fewer rule as a basis not to have to register as investment advisers with the SEC. Many of these same fund sponsors also rely on Section 3(c)(5)(C) not to have to register as an investment company under the Investment Company Act of 1940. Alternatively, others rely on Section 3(a)(1)(A) or (C) as a basis not to register under the The Investment Company Act of 1940. The question now arises whether they will need to register as advisers.

We think a possible fix would be to adjust "assets under management" per the Form ADV.

Proposal #1: Revise the instructions to Item 5.F to include "For purposes of this 50% test, you may (but are not required to) exclude securities that are "Qualifying Interests in Real Estate". Qualifying Interests would reference the series of 3(c)(5)(C) No Action Letters and related Releases.

Proposal #2: Revise the instructions to Item 5.F to include "For purposes of this 50% test, you may (but are not required to) exclude Majority Owned Subsidiaries whose assets are comprised substantially or +__% of real estate." Majority Owned Subsidiary would be as defined in the Investment Company Act of 1940.

Proposal #3: Same as Proposal #2, but use "Wholly-owned Subsidiary" per the Investment Company Act of 1940.